Integrating Philanthropy with Microfinance: Models of Community Empowerment

Abstract

Microfinance, and especially microcredit, is increasingly believed to be inappropriate for the chronically poor and destitute. Loans to the destitute may in fact make the poor poorer if they lack opportunities to earn the cash flow necessary to repay the loans. Indeed, the other word for credit is debt. A destitute person may be reluctant to incur debt and start a micro-enterprise because of risk and uncertainty with cash flows. Usually, the individual may not possess the entrepreneurial and technical skills needed for wealth creation. Such an economically inactive individual would be unbankable and would find it difficult to obtain financing from for-profit microfinance institutions. Indeed, more than financial services, these individuals must be provided for their basic needs, such as food, shelter or guaranteed employment. Such safety nets may be funded through charity. In order to cross the skill-related barrier, such individuals would also need training for skills development before they are able to make good use of microfinance. The safety nets may then be linked with microfinance programs, so that the same individuals may move through several stages — from abject penury to a stage where they are able to meet their consumption needs, then to a stage where they come to acquire necessary technical and entrepreneurial skills for setting up micro-enterprises, and finally to a stage where they are able to obtain the required funds from microfinancing institutions (MFIs) and have the micro-enterprises up and running.